The Two Tales of China’s Infrastructure Investment Spree
Horace “Woody” Brock of Strategic Economic Decisions is a big fan of infrastructure spending. The economic scholar would have the United States invest $10 trillion in public infrastructure in the coming year.
According to Brock, however, China, has run out of roads to invest it.
Epoch Times: China has invested the most in infrastructure of any country during the last decade. Will they have high returns in the future?
Woody Brock: The answer is crystal-clear. When you build roads to nowhere, empty cities, you have a big negative rate of return.
At first, China didn’t do that. Between 1981 and 2005, in my opinion, China brilliantly spent a lot of money, huge infrastructure, but they did it right. When they borrowed, they didn’t build a road to nowhere, there was a new city to go with the road and then there was a train.
They did this for 25 years. As theory says, this should’ve increased productivity and economic growth enormously and it did. Good theory is never wrong.
Epoch Times: But then what happened?
They hoped consumption would go up and investment would fall from 45 percent to 32 percent of GDP. This didn’t work so they had to go back to massive investment spending to keep people working when the export story fell apart.
They had to, because China is different from Russia. In Russia, when you have a depression, workers get drunk. But in China they riot and they hate the Communist Party who are mostly thugs and crooks.
The regime is terrified of the people. That’s why … Xi Jinping is telling banks: “I don’t care if you’re losing money, don’t stop funding these new things. Factories, don’t stop producing widgets. We have to keep people working.”
Epoch Times: What’s your take on the current economic slowdown?
Mr. Brock: China is in trouble now and should be in trouble because it built 18 cities you can see through. It has huge debt only now because only now did they not stick to the drill and invest in good things. They didn’t.
They just kept people working. The world is impressed by the fact that China sailed through the Great Recession and kept its GDP going. Drilling holes to nowhere, as Joyn Maynard Keynes pointed out, does keep GDP growing.
But then something happened on January 3, 2013 when the world was in recovery. The regime of China went to its postbox and guess what was not in the postbox? A rent check. That there’s no growth and that was why some regional banks have collapsed.